Abstract

This paper investigates the short-term price predictability of US fixed-income ETFs in reaction to one-day extreme returns. Based on an assessment of 582 extreme price movements of ETFs in the 2007-2014 period, we compare the normal hours returns (‘open-to-close’) and after-hours returns (‘close-to-open’) for a group of 87 ETFs. We find a stark contrast between what occurs in these two periods: on average only extreme returns that occur after-hours represent an overreaction, leading to a significant reversal in the following period. Our results suggest that markets during after-hours tend to be significantly more inefficient. These results carry important implications for both regulators and market practitioners.